How is an increase in the value of property, plant, and equipment (PPE) recognized under IAS 16?

An increase in the value of property, plant, and equipment (PPE) is recognized under IAS 16 through other comprehensive income and reflected in the statement of comprehensive income. This treatment is particularly relevant when a revaluation model is applied to PPE.

Under the revaluation model, when an asset's carrying amount is increased due to revaluation, this increase is recognized in other comprehensive income as part of the revaluation surplus. By doing this, the standard maintains the integrity of the profit and loss account, ensuring that the fluctuations in asset values do not directly impact the profit or loss for the period unless the asset is eventually disposed of or an impairment occurs.

This recognition highlights the gain in property value without affecting the operating results, presenting a clearer view of profitability. Furthermore, when the asset is revalued, subsequent depreciation calculations will be based on the new valuation, which will properly reflect the amortization of the asset's increased worth over its remaining useful life.